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Nigeria Government Finance
A major cause of political conflict in Nigeria since
independence has been the changing formula for allocating
revenue
by region or state. Before 1959 all revenues from mineral
and
agricultural products were retained by the producing
region. But
after 1959, the region retained only a fraction of the
revenue
from mineral production. This policy was a major source of
dissatisfaction in the Eastern Region, which seceded in
May 1967
as the would-be state of Biafra. By contrast, the revenue
from
agricultural exports was retained by regional marketing
boards
after 1959, but the agricultural exports of eastern
Nigeria were
smaller than those of the other major regions.
The rapid growth of petroleum revenue in the 1970s
removed
most of the severe constraints placed on federal and
regional or
state budgets in the 1960s. Total federal revenue grew
from
N306.4 million in 1966 to N7,791.0 million in 1977, a
twentyfivefold increase in current income in eleven years.
Petroleum
revenue as a percentage of the total went from 26.3
percent in
1970 to more than 70 percent by 1974-77.
During the civil war, most of the twelve new states
created
in 1967 faced a revenue crisis. But a 1970 decree brought
the
states closer to fiscal parity by decreasing the producing
state's share of export, import, and excise duties, and of
mining
rents and royalties, and by increasing the share allocated
to all
states and the federal government. Also, in 1973 the
commodity
export marketing boards, which had been a source of
political
power for the states, were brought under federal control.
Other
changes later in the 1970s further reduced claims to
revenue
based on place of origin. In the 1970s, the federal
government
was freed to distribute more to the states, thus
strengthening
federal power as well as the states' fiscal positions.
Statutory
appropriations from the federal government to the states,
only
about N128 million in FY1966, increased to N1,040 million
in 1975
with the oil boom, but dropped to N502.2 million in 1976,
as oil
revenues declined.
The burgeoning revenues of the oil boom had encouraged
profligacy among the federal ministries. Government
deficits were
a major factor in accelerated inflation in the late 1970s
and the
early 1980s. In 1978 the federal government, compelled to
cut
spending for the third plan, returned much of the
financial
responsibility for housing and primary education to state
and
local governments. Federal government finances especially
drifted
into acute disequilibrium between 1981 and 1983, at the
end of
President Shagari's civilian administration, with the 1983
federal government deficit rising to N5.3 billion (9.5
percent of
GDP) at the same time that external debt was increasing
rapidly.
The state governments' deficit compounded the problem,
with the
states collectively budgeting for a deficit of N6.8
billion in
1983.
Falling export prices caused the military governments
between
1983 and 1988 to continue cutting real spending,
especially for
capital, imports, civil service and armed forces salaries
and
consumer subsidies. Many parastatals also had their
subsidies
cut, while others were sold off entirely. The result of
these
actions was a substantial reduction in the federal
deficit. The
announcement of the spending reductions that would be part
of the
fifth plan coincided with the military coup of August
1985.
Unlike earlier plans, the fifth plan (put back to 1988-92
party
because of the coup) allocated the largest amounts of
capital to
agriculture and stressed the importance of private
investment.
In 1988 the federal budget was still highly dependent
on oil
revenues (taxes on petroleum profits, mining rents and
royalties,
and Nigerian National Petroleum Corporation earnings).
Altogether, oil receipts accounted for 77 percent of total
federal current revenue in 1988 (see
table 7, Appendix).
The
federal government retained 62 percent of the revenue it
collected in 1988, while the rest of the funds were
distributed
to the state and local governments by a formula based on
population, need, and, to a very limited extent,
derivation.
International aid designated for domestic Nigerian
development constituted a minor source of government
revenue. In
1988 such official assistance amounted to US$408 million,
or
US$1.1 per capita, which placed Nigeria lowest among
low-income
and lower-middle-income aid recipients. This aid
represented 0.4
percent of Nigeria's GNP, far less than the average of 2.4
percent received by all low-income countries, a group that
included much states as China, India, and Zambia.
Data as of June 1991
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